Autumn 2012 statement in depth

Wednesday 5 December 2012 13:22 BST

ECONOMY

A BIG downgrading of the economic forecasts is at the heart of today’s decisions.

Only eight months ago the spring Budget assumed growth of 0.8 per cent this year and two per cent next. Now it is set to shrink 0.1 per cent and then grow just 1.2 per cent in 2013, then by 2, 2.3 and 2.7, to 2.8 per cent in 2017.

The knock-on effect is £61 billion higher borrowing — though some critics think the true extra borrowing is £135 billion once accounting changes are factored in. This year’s deficit will be £108 billion. It will come down to £99 billion next year, then in following years £88 billion, £73 billion, £49 billion and £31 billion. The total of £448 billion borrowing over six years would have been £508 billion but for the Treasury keeping interest payments formerly made to the Bank of England for the quantitative easing scheme.

Inflation is falling more slowly: down to 2.4 per cent on the CPI measure next year, then 2.2, then on target at two per cent from 2015 onwards. There is good news on unemployment: it will peak in 2013, a year later than hoped, but at 8.2 per cent rather than 8.7 per cent forecast, meaning 100,000 fewer on the dole.

The independent Office for Budget Responsibility believes the worsening of public finances is cyclical rather than structural, which means they should recover when growth gathers pace. Its confidence in improvements by 2018 is crucial in persuading markets we are on course for recovery.

WELFARE AND PENSIONS

MILLIONS will see benefits cut in real terms over the next three years.

Most benefits for working age people will rise by just one per cent per year, less than half the inflation rate, saving the Treasury £3.5 billion by the 2015 election and £4.5 billion a year from 2017.

The basic state pension will beat inflation, rising 2.5 per cent. Disability benefits will go up by inflation. Among payments squeezed are housing benefit claimed by

3.5 million, income support claimed by 900,000, job seeker’s allowance paid to 1.6 million unemployed and tax credits given to 4.5 million. Child benefit paid to eight million families will rise by

one per cent. This benefit has been frozen in recent budgets.

Although a one-year squeeze had been mooted, nobody expected it to last three years. The cuts were agreed with Nick Clegg following tense negotiations after the Chancellor announced two months ago his aim to chop £10 billion more off the welfare bill by 2016/17, on top of £18 billion of cuts announced in 2010.

Wealthy pensioners will still get their winter fuel allowance and free bus pass and TV licence at least until 2015.

Better off families, with one earner on more than £60,000, will lose child benefit from January under existing plans.

TAX AND WEALTH

A TAX cut goes to lower and middle earners — but top earners will be hit and more families will pay 40 per cent tax. London’s super-rich face a cut in the amount they can save tax-free in pension schemes, down from £50,000 to around £40,000, hitting 360,000 top earners.

The lifetime limit falls from £1.5 million to around £1.25 million. Analysts say it will net £1 billion. Those earning more than £42,000 will be squeezed by a decision to restrain the annual uprating of the higher rate tax threshold to one per cent rather than inflation.

It will raise £1 billion but mean 400,000 people get sucked into the 40 per cent tax bracket over the next five years. Capital gains and inheritance tax thresholds also rise by one per cent. In April, the inefficient 50p top rate paid by £150,000 earners will fall to 45p. The Treasury is getting an extra £77 million to investigate tax cheats. Next year legislation will target tax advisers, with fines if they conceal aggressive schemes. Some 3.2 million Londoners get a £47 tax cut from a £235 increase in the personal allowance. Some 28,000 will be lifted out of tax altogether.

GROWTH AND JOBS

A £12 billion package for growth will help businesses with tax cuts and construction go-aheads.

Corporation tax will fall again, by a penny, to reach a new low of 21p by 2014 from the current 24p. That will be the lowest rate in any advanced economy in the world.

Small business rate relief is being extended another year to 2014 and developers will get relief if they build offices that cannot find tenants for up to 18 months, worth £750 million to 800,000 small firms in London alone. Billions raised from the sale of 4G mobile phone licences will be ploughed into investment over three years. There will be a 10-fold boost to investment allowances. Some £1.5 billion will go towards easing lending for firms and in guarantees to underpin deals.

The Chancellor is diverting money from Whitehall spending to the economic front line, with £5 billion switched to schools building, science and roads.

He confirmed the £1 billion business bank and tax incentives for shale gas which promises a boom in cheap energy.

TRANSPORT AND DRIVING

Motorists can breathe easier with the 3p duty rise due on New Year’s Day abolished altogether.

In addition, another 3p rise due in April is postponed until September. It means fuel will be 13p cheaper next year than it would have been under annual rises inherited from Labour — costing the Treasury £1.5 billion. Three million London drivers will save on average £40. The big transport news for London is a go-ahead for the Northern line extension to Battersea, with a £1 billion loan to the GLA on easy terms from a public works body.

It will form a gateway to an area of major redevelopment, including the zone around Battersea Power Station.